Wall St ends lower for the day and week as chip sell-off broadens

Traders working on the floor of the New York Stock Exchange during morning trading on July 17, in New York City.

NEW YORK - Wall Street extended its decline on July 17 as a pullback on stocks associated with the AI boom, which has driven many of the gains so far this year, morphed into a larger risk-off sentiment.

Semiconductor shares, which have led the broader market’s move in recent sessions, initially led the sell-off, which broadened as the session progressed.

All three major US stock indexes closed lower on the day and posted weekly losses.

The Philadelphia SE Semiconductor Index logged its steepest weekly loss in over a year, and has tumbled over 18 per cent so far in July. Even so, the index remains up nearly 65 per cent year-to-date, compared with the S&P 500’s nearly 9 per cent gain over the same time frame.

The SOX closed 20.2 per cent below its June 22 record closing high, confirming the index entered a bear market on that date. Some investors in the artificial intelligence space have begun positioning for a slowdown in the nearly trillion-dollar spending boom, with some active managers already scaling back their exposure, according to a Reuters analysis.

“It’s like the market has chip fatigue,” said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska. “Chip stocks are down three of the last four weeks, and it’s the same worries, the same concerns; those stocks got way ahead of themselves, and now they’re coming back to Earth.”

Among the Magnificent Seven group of AI-related megacaps, all but Apple dipped, with Meta and Alphabet suffering the worst of it, down 2.7 per cent and 3.2 per cent, respectively.

The Dow Jones Industrial Average fell 406.55 points, or 0.77 per cent, to 52,146.42, the S&P 500 lost 76.08 points, or 1.01 per cent, to 7,457.69 and the Nasdaq Composite lost 361.70 points, or 1.4 per cent, to 25,520.24.

Among the major sectors of the S&P 500, communication services and consumer discretionary fell the most, while energy stocks were the sole gainers, benefiting from spiking crude prices amid signs of escalating hostilities in the Iran war.

Second-quarter earnings season is still in its early days, with 49 of the companies in the S&P 500 having reported. Of those, 90 per cent have delivered better-than-expected results, according to LSEG.

Analysts now see year-on-year S&P 500 earnings growth of 26 per cent, in aggregate, up from the 19.2 per cent expectations as of April 1, per LSEG.